What if I told you that you could raise your prices and still make more sales?
Most eCommerce stores never test their pricing. The manufacturer or wholesaler gives them a MAP and that’s where the prices remain. After all, customers always choose the lowest price, right?
While it sounds logical that customers always choose the lowest price, it’s still an assumption. Sure, in some cases customers might go for the lower price. However, according to some studies, there are times when customers choose the higher price more often than not.
In this post we’ll look at some pricing strategies you can test on your store to make more sales.
Remove the $
Answer quick! Which is the biggest number -
1) $1,000.00
2) $1,000
3) $1000
4) 1000
If you picked one of the four options, you’re like most consumers. A study actually shows that we think numbers with dollar signs and decimal points are larger, when in fact all four numbers are equal.
This is because of the way we say these numbers out loud. The first number is ‘One thousand dollars and zero cents’ while the last is ‘thousand’. Sub-consciously we associate longer verbal lengths with higher numerical value, making the first number seem larger.
You may have noticed restaurants taking advantage of this. Next time you go to a restaurant, check the menu to see if they include dollar signs and cents in their pricing. It turns out people spend significantly more when there are no dollar signs.
Try testing this strategy on your eCommerce store. You’ll need to run a site-wide split-test to see whether the dollar sign makes a difference or not. Your prices will remain the same, but you just might find people spending more without the dollar sign to make them price conscious.
End with 9
Yup! You’ve seen this everywhere and you’ve probably thought it’s silly. Of course there’s no difference between $99 and $100. There’s no way you’re stooping to such sneaky tactics on your site.
There you go making assumptions again. The guys at Quantitative Marketing and Economics don’t make assumptions, though. They decided to test the power of 9 with three field-studies, and in all three they found that prices ending in 9 beat out other price.
But that’s not all. One of the studies included testing the same women’s clothing item at three prices – $34, $39 and $44. Any guesses which price made the most sales?
That’s right, $39 and by a mile! It even beat out the lower priced $34. That means a hike of 14% in the retail price brought more sales. Think about that for a second.
Now are you ready to invoke the power of 9 on your store? Don’t go raising every price to the next number ending in 9. Instead, pick two similar items for your test. Keep one at its original price and raise the other to the next number that ends in 9. Now you have a control and a test. Make sure equal amounts of traffic are sent to both products and see which one makes more sales.
Create decoy bundles
Dan Ariely talks about a very interesting pricing study he came across on The Economist. On their website they had three pricing option for subscription -
- A web only subscription for $59
- A print only subscription for $125
- A print and web subscription for $125
At first glance the second price point seems redundant. Why get the print only subscription for $125 when you can get print and web for the same price. Especially when the web only subscription is priced at $59. It looks like the third option saves you $59.
Dan decided to test out the effect of this pricing with his students. When he offered all three options to them he found that 84% bought the third option, 16% bought the first, and no one bought the second. Makes sense so far.
However, when he decided to remove the redundant second offer, the results changed completely. Now 68% bought the first one and 32% bought the last. Clearly the redundant price point wasn’t so redundant after all. It was actually a decoy.
The reason the decoy worked is because we can’t intrinsically value items in general. We value one pair of shoes by comparing it to others, a house by comparing it to neighbours and so on. In this example, we’re comparing the last two options because they have the same price and find that we get more value with the third option.
In your store you might have core items that cost more and accessories that cost less. The core products are what add value but the accessories are where you can make your margins. Try raising the price of the core product and then present customers with an alternative that has the accessory bundled in at the same price.
Sell the experience
How much does a coffee cost? Depends on where you buy it. The 7/11 sells it for $1 but it costs $3 at Starbucks. Same product, different pricing.
Drinking a coffee in this place sells the experience, not just the brew.
Now you could argue that the Starbucks coffee has a higher quality, hence the price. But Richard Thaler tested this out with beer. He asked participants to imagine they were on a beach and that someone was offering them a can of their favourite beer. The beer would either come from an upscale hotel or a rundown grocery store. Results showed that participants were willing to pay more for the one from the hotel even though it was the same brand.
Consumers don’t just value the product, they value the experience around the product too. Even if it’s not a tangible experience like in the study. For your eCommerce site, you can improve the experience with better design, prompt customer service, engaging content and interesting copy.
Significant Objects showed how consumers add value to a product that has an experience around it. They bought cheap objects from thrift stores for $1.25 and sold them on e-Bay with very interesting short stories as product descriptions. The products ultimately sold for a significant markup.
Price anchor
If you thought the previous Dan Ariely experiment was interesting, you should read about this next one. In the experiment he asked a bunch of MIT students to write down the last two digits of their social security numbers. He then presented them with a bunch of items, such as a bottle of wine or a cordless keyboard, and asked them if they would pay a dollar amount equal to those digits for each product.
Now here’s the interesting part. He asked each student to bid on the items and the highest bidder for each item would have to buy it. After everyone wrote down their bids he went through them and found that students with higher social security numbers ended up bidding more for each item. In other words, associating each item with an arbitrary value (their social numbers) had influenced how much they would actually pay for it.
Next time you’re out shopping pay attention to the prices you see. If you see a $1000 suit then the $100 shirt doesn’t look too expensive. The higher price you see first gets anchored in your mind and any price you come across after that looks like a bargain.
Conversely, if you see a $10 t-shirt first then the $100 shirt is just ridiculous. In this case you’re primed to expect lower prices because of the cheap t-shirt, so anything you see after that will be subconsciously compared to it.
Try priming your customers with higher prices on your site. This will be easy to test. When displaying products in category pages or searches, sort from highest prices to lowest prices. Customers will see the upper end first and every other product will look like a better deal.
When testing out pricing strategies it’s important to start on a small scale. Try out a new price on one or two items, or test it out on a small segment of your customers. Once you’ve collect data that’s statistically significant, you can roll it out to the rest of your store.
Have you tried any other pricing strategies on your store? Share it with us in the comments below.
The post 5 Pricing Strategies You Should Test On Your eCommerce Store appeared first on LemonStand.
